Economics of the Environment Essay Example | Topics and Well Written Essays - 2250 words

Economics of the Environment - Essay Example Particular issues include the cost and benefits of alternative environmental policies to deal with air pollution, water quality, and toxic substances, Solid waste, and global warming (Hanely, Shogern & White, 2001). Some of the major projects, which have substantial environmental impacts, is Afforestation of Surplus agricultural land, hydroelectric schemes, Building, or widening roads, constructing a new Airport and Manufacturing cars. All the above projects are likely to generate substantial Environmental costs and/or benefits, and they can be considered as Potential Investment. Potential Investment: A Potential Investment can be defined as the Investment made by an investor for growth (profit) of his/her investments in a firm or in a project. Investors look for evidence that, we can really produce growth in our project, and they look for three important things before investing, excellent growth potential, exceptional return on investment, up to 25% to 45% and a way to get their mon ey out. We have to show them how our opportunity will deliver all three, and doing so will be a potential investment made by an investor in our firm or in a project. A Potential Investment can also be a huge project, which has a substantial impact on the environment. It can be a Hydroelectric project, Afforestation project, Building or widening roads, constructing a new airport, and Manufacturing cars. As these projects, have many impacts such as on environment, for profit of an investor, public convenience and many more. When a project is been started, they are many calculation done for different purpose, such as profit, low initial cost, higher efficiency of the project, easy maintenance, etc... In addition, for doing such calculation different numerical, theoretical, ratio analysis and analytical methods such as CBA (cost beneficial analysis) and CEA (cost effectiveness analysis) are been use. For this assignment, we select Afforestation of surplus agricultural land as our major project, which deals with planting of trees on land that did not carry forest for centuries, i.e. Afforestation is a clear shift in land use of a certain area. Afforestation in form of planting trees and future maintenance is an investment for landowner, and possible forgone revenues from Agriculture need to be included. Afforestation of former arable land will have many positive environmental effects. The change from agriculture to forestry means less input of pesticides and Fertilizers that may possibly leach to ground water reserves and the establishment of habitat for species associated with forest. Forest's also able to better retain nitrogen from arable use in the ecosystem, thereby avoiding eutrophication of water reserves. In this paper, we show how CBA can be used as a decision support mechanism for the location of new (urban) forestland, starting from the multifunctional role of these new forests. We start with a simple presentation of the Cost-benefit analysis (CBA) technique. Key features of these evaluation techniques are that (i) assess the monetary value of all benefits and cost (ii) the issue of discounting and (iii) the decision rules used in CBA. Finally, we apply the CBA to a real life policy problem. We investigate the net benefits per Hectare of combinations of potential forests that meet the surface restriction of 540 ha. We show the importance of including recreation benefits in the evaluation of afforestation projects and more specifically the role of alternative forests (substitutes) in the valuation of one specific Forest. We find that this substitution effect is significant in the decision